The Price of Nonprofit Debt

Nonprofits take on debt (i.e., borrow) in the short term to cover temporarily inadequate cash flow and in the long term to finance capital expenditures that they expect to recover in the course of doing business. Capital expenditures naturally carry an element of risk.

That chicken came home to roost for many arts organizations during the Great Recession, when even the most carefully made projections encountered a perfect storm of waning revenue sources. (Arts organizations, of course, gamble fairly regularly on the staging costs of a production or a new or improved performance space. Their financial analysis may beautifully justify the gamble—but, as they say, man plans and God laughs.)